2014 (1) TMI 292 - AT - Income Tax

Whether deduction u/s 80IA available to work contractor - As per the explanation substituted to section 80IA by Finance (No. 2) Act, 2009 with retrospective effect from 01.04.2000 - Section 80IA is not applicable for the persons who executes a works contract with any undertaking or enterprises - Following GVPR Engineers Ltd. -vs.- ACIT 2012 (4) TMI 149 - ITAT HYDERABAD - Mere works contract would not be eligible for deductions under section 80IA - The purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work - Section 80IA is available to developers who undertakes entrepreneurial and investment risk and not to the contractors, who undertake only business risk - The assessee clearly demonstrated that it has undertaken huge risk in terms of development of technical personnel, plant and machinery, technical know-how, expertise and financial resources - Prior to amendment the or between the activities was not there, after the amendment or has been inserted with effect from 1.4.2002 by Finance Act, 2001 - If the contracts involve design, development, operating and maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction under section 80IA - The contracts which contain above features to be segregated, this deduction under section 80IA have to be granted and the other agreements which are pure works contracts hit by the Explanation to section 80IA(13 ), those work are not entitled for deduction under section 80IA - The order of CIT was quashed - Decided in favour of assessee.

Summary

Issues Involved:

1. Condonation of delay in filing the appeal.
2. Legitimacy of the revision order under section 263 of the Income Tax Act, 1961.
3. Eligibility for deduction under section 80IA(4) of the Income Tax Act, 1961.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The assessee filed the appeal with a delay of 288 days. The delay was attributed to Shri Deepak Acharya, an employee of the assessee-company, who mistakenly believed that an appeal was not required against an order passed under section 263 of the Income Tax Act, 1961. The assessee's counsel argued that the delay was not due to negligence but due to a mistaken belief, citing decisions from the Hon'ble Apex Court to support the condonation. The opposing counsel argued that the company should have had proper arrangements for timely filing appeals and questioned the credibility of Shri Deepak Acharya's affidavit.

Upon reviewing the affidavit and the contentions, the tribunal found that Shri Deepak Acharya was a responsible officer and that the delay was due to a genuine mistake. The tribunal emphasized that penalizing the assessee for an employee's mistake would be unjust. Therefore, the delay was condoned, and the appeal was admitted.

2. Legitimacy of the Revision Order under Section 263:

The assessee challenged the order under section 263, arguing that the Assessing Officer (AO) had already made a detailed verification of the deduction claims under section 80IA(4) during the original assessment. The AO had disallowed deductions for two projects based on the Explanation to Section 80IA introduced by the Finance Act, 2007. The revision under section 263 was initiated because the Explanation was substituted by the Finance (No. 2) Act, 2009, with retrospective effect from 01.04.2000, which the AO did not consider.

The assessee's counsel argued that the AO's decision was a lawful view based on the law at that time, and the CIT was merely substituting his view, which is not permissible. The opposing counsel maintained that the substituted Explanation applied retrospectively, justifying the CIT's revisionary jurisdiction under section 263.

3. Eligibility for Deduction under Section 80IA(4):

The tribunal examined whether the assessee was a developer or merely a contractor, as the substituted Explanation to Section 80IA(4) disallowed deductions for works contracts with the government. The tribunal referred to the Hon'ble Hyderabad Bench's decision in GVPR Engineers Ltd. and KMC Constructions Ltd., which clarified that the nature of the work determines eligibility. The agreements indicated that the assessee undertook substantial responsibilities, including design, development, and maintenance, qualifying it as a developer rather than a mere contractor.

The tribunal concluded that the AO's decision to allow the deduction under section 80IA(4) after scaling it down was a lawful view. The CIT's attempt to substitute his view was not justified, as per the Hon'ble Apex Court's decision in Max India Limited, which states that if two views are possible, the AO's view cannot be deemed erroneous if it is lawful.

Conclusion:

The tribunal quashed the order under section 263, allowing the appeal filed by the assessee. The decision emphasized that the AO's original assessment was a lawful view, and the CIT's revision was an unjust substitution of views. The tribunal also condoned the delay in filing the appeal, recognizing it as a genuine mistake by an employee.